Digital Turbine: Still Cheap If The Turnaround Is Genuine

Core Viewpoint - Digital Turbine's business may be stabilizing after a prolonged period of weakness, with a return to sequential growth and positive EBITDA in Q1, despite low valuation and ongoing challenges in device sales [2][5]. Market Conditions - Digital Turbine's reliance on device sales continues to pose challenges, with US device shipments declining 8% YoY in Q1 2024, marking the sixth consecutive quarter of decline [3]. - The company anticipates that the trend in device sales will remain consistent in the short term, influenced by a lack of innovation from smartphone OEMs and fewer software updates, which reduce monetization opportunities [3]. - The Digital Markets Act in Europe could provide a future tailwind, but its impact is still uncertain as it is in the early stages of implementation [3]. Business Updates - Digital Turbine has completed the consolidation of its DT exchange, contributing to brand growth, with brand revenue increasing 25% sequentially in Q1 [4]. - The company has improved its first-party traffic, which has grown from over 10% to over 40% in two years, leading to better results and higher margins [4]. - Revenue per device improved by 15% in Q1, with international markets showing strength, and the company is expanding partnerships with various device manufacturers [4]. Financial Analysis - Digital Turbine generated $118 million in revenue in Q1, a 5% sequential increase but a nearly 20% YoY decline [5]. - The company expects FY2025 revenue to be between $540 million and $560 million, indicating a potential return to solid double-digit growth later in the financial year [5]. - Gross margin in Q1 was 46%, with EBITDA margin at 12%, down YoY due to revenue decline, but improvements in cost control and growth are expected to enhance margins going forward [7][8]. Conclusion - Digital Turbine's share price rebound is likely if revenues stabilize and margins improve, although caution is warranted due to past disappointments [11]. - The expectation of a return to growth, even without stronger device sales, is viewed positively, with potential upside from the alternative app distribution business [11][12].